Tag Archives: debt

Matt Taibbi on Romney and Private Equity

Matt Taibbi has a new piece in Rolling Stone about Mitt Romney’s time at Bain Capital, and how Bain used large amounts of debt to execute its buyouts. The overall theme is one of financial engineering vs. making things, of pillaging companies to generate wealth vs. building companies to create jobs.

Like most things Taibbi writes, this article is:

  1. Very funny
  2. Savagely mean
  3. Only about 75% accurate, and you need to know a lot about Wall Street to know which quarter is wrong

However, in light of my prior post on private equity, there are two paragraphs that I wanted to quote because they are both amusing and apt.

Talking about the private equity model of loading up a company with debt and then paying fees and dividends to the buyout firm, Taibbi says:

This business model wasn’t really “helping,” of course – and it wasn’t new. Fans of mob movies will recognize what’s known as the “bust-out,” in which a gangster takes over a restaurant or sporting goods store and then monetizes his investment by running up giant debts on the company’s credit line. (Think Paulie buying all those cases of Cutty Sark in Goodfellas.) When the note comes due, the mobster simply torches the restaurant and collects the insurance money. Reduced to their most basic level, the leveraged buyouts engineered by Romney followed exactly the same business model. “It’s the bust-out,” one Wall Street trader says with a laugh. “That’s all it is.”

And then, comparing Romney’s speeches decrying America’s level of debt with his Bain Capital strategy of loading up companies with debt, Taibbi writes:

To recap: Romney, who has compared the devilish federal debt to a “nightmare” home mortgage that is “adjustable, no-money down and assigned to our children,” took over Ampad with essentially no money down, saddled the firm with a nightmare debt and assigned the crushing interest payments not to Bain but to the children of Ampad’s workers, who would be left holding the note long after Romney fled the scene. The mortgage analogy is so obvious, in fact, that even Romney himself has made it. He once described Bain’s debt-fueled strategy as “using the equivalent of a mortgage to leverage up our investment.”

I like that one because it makes the connection between private equity and mortgages, as I did in my post.

Again, I’m not fully supporting Taibbi’s reporting or his conclusions, but he makes some good points.

Democrats Need to Lead, or Lose

S&P downgraded US debt from AAA yesterday, knocking Treasuries from their perch as the safest debt on earth. We will see what happens to yields on Monday, but so far it’s not clear that the markets agree with S&P. After all, this is an agency that had AAA ratings on subprime mortgage-backed securities not that long ago.

But in the meantime, the GOP is using the downgrade to attack Obama, saying “look what happened on his watch.” The president doesn’t deserve all the blame, but I understand why the GOP has seized the downgrade as a bludgeon. And in the same way, democratic operatives are putting the blame on the tea party and its refusal to compromise on deficit cutting.

But you know who isn’t saying anything? Democratic leaders. The White House, Harry Reid, Nancy Pelosi — they are all keeping silent on this. They are trying to be the “adults” and not play the blame game. I appreciate that high-mindedness, but here’s the thing: the game is being played, with or without them. If they stay silent then they just let the GOP control the narrative. You know the Sunday talk shows will be full of Boehner and Cantor and Romney and the gang piling on Obama for the downgrade.

The Democrats have to realize that they are in the middle of a street fight and if they don’t fight back they will lose. And they’ll deserve to lose. If you are going to suck ass at politics, then you shouldn’t be a politician. Regular readers know that I mostly support Democratic policies (with some huge exceptions that I ought to detail one of these days), but I sure don’t support Democratic fecklessness. The Democrats got rolled on the debt ceiling negotiation, and now they are getting rolled on the downgrade. It’s pathetic. Or, to quote a senior democratic official: “if this White House showed a gram of leadership on the debt crisis we could have avoided this historic embarrassment.”